Tax breaks set to aid regeneration and urban renewal

In January, chancellor Gordon Brown said this Budget would include measures designed to create an "enterprise culture" in those parts of the country with the highest levels of unemployment.

These areas needed more business start-ups and increased private sector investment, he said, and the government would present a range of new incentives to encourage both.

This means the Budget could include a package of targeted tax breaks, which Mr Brown said he would be consulting on in the run-up to this year's announcement. They include:

 Cuts in stamp duty. November's pre-Budget report said the government would abolish this tax for all property transactions in the country's most deprived areas to stimulate the property market and encourage urban renewal.

 Reduced business rates. A proposal suggested in last year's local government finance green paper that would cut overheads for small businesses throughout England.

 Changes in capital gains tax. The Treasury has yet to release details of what these might be, but they will probably allow businesses to keep more of the profits from long-term investments in deprived areas.

Ultimately, Mr Brown hopes these measures will lead to an extra £1bn of private investment making its way into high unemployment areas of the country.

With the chancellor and trade and industry secretary Stephen Byers convinced of the need to realise the economic potential of the English regions, Mr Brown might also unveil extra allowances and incentives to support this. The package could include a range of new freedoms for the regional development agencies to spend their funding, a move trailed in the pre-Budget report.

That report included several other regeneration measures due to be carried through to this year's announcement. Among them were:

 Accelerated tax credits for cleaning up contaminated land. Aimed at encouraging land recycling by providing immediate tax relief for property investors' clean-up costs. Businesspeople will no longer have to wait until they sell to reap the tax rewards.

 Immediate tax relief for converting redundant space above shops into flats. Aimed at making better use of urban space and bringing more life into commercial areas.

 Reduced VAT on converting residential properties into flats. A 5% rate aimed at creating more homes in areas of high demand.

 Zero VAT on renovating residential property empty for 10 years or more. Designed to encourage investors to bring derelict properties back onto the market.

The new VAT rates will be welcomed by social housing professionals, but bodies such as the Chartered Institute of Housing want to see the measures go further, and are hoping the chancellor will equalise the rates for building new properties and refurbishing old ones.

At present, new buildings attract no VAT, while refurbishment is charged at the full rate, a policy that flies in the face of the government's plans for urban renewal by discouraging the recycling of old homes and business premises. The equalised rate could be 5% or 7.5% for both types of work.

Mr Brown will probably have little to say about local government - councils have already had their finance settlement, with ministers delivering a funding increase of more than 7% plus an extra £190m to help keep down council tax levels.

Mr Brown can choose to add money in, and if he does decide to hand out funds from his pre-election war chest, some of it could end up in town and county hall coffers.

But the chancellor has set his face against "irresponsible pre-election giveaways", and promised to use this budget to lock in tough public sector spending rules, making any significant financial boost unlikely.